New minimum down payment requirements for purchases over $500,000

The federal government is increasing the minimum down payment required to buy a home for more than $500,000 in an effort to cool the red-hot housing markets in Toronto and Vancouver, but some economists say the impact on housing activity will be minimal.

Finance Minister Bill Morneau made the announcement in Ottawa on Friday.

"We are looking at ways to ensure our market is stable and we want to make sure people are making the appropriate decision as they buy a new home," Morneau said during a news conference.

The new regulations will increase the minimum down payment from five to 10 per cent on the portion of the home's price that's greater than $500,000.

The minimum down payment on the first $500,000 of the home's price will remain at five per cent.

Morneau said the changes will impact one per cent or less of the housing market.

CTV News first learned of the tightening of mortgage rules on Thursday.

Canadians who already hold mortgages will not be affected by the new rules, Morneau said.

The new regulations will come into effect on Feb. 15, 2016.

Under the new rules, a $700,000 home would require a minimum down payment of $45,000. The $45,000 would consist of a five per cent down payment on the first $500,000 of the home, added to a 10 per cent down payment on the remaining $200,000 of the home.

Morneau said homes that cost more than $1 million are not affected by the changes, as they already require a 20 per cent down payment.

Morneau said the new mortgage rules specifically target the Toronto and Vancouver's housing markets, where "prices have been elevated."

"We want to make sure we create an environment that protects the people that are buying homes so they have sufficient equity in their home," he said.

When asked if he's afraid of a housing bubble, Morneau said the housing market, in general, is stable.

"We're not talking about bubbles here," he said. "We're talking about ensuring Canadians take the right approach in investing in a home."

He added the changes will protect existing homeowners and ensure new buyers have an "appropriate" amount of equity in their home.

Morneau also announced that the Canadian Mortgage and Housing Corporation will change the fees it charges issuers of mortgage-backed securities.

Housing sales may increase in short-term: BMO

Following Morneau's announcement, the Bank of Montreal said the mortgage changes could trigger "abnormally-strong activity" in January as potential homebuyers try to avoid the increase in down payments.

However, BMO senior economist Robert Kavcic said in a statement that the changes will have a small impact on the housing market.

He noted that from 2013 to early 2015, only about a quarter of Canadian homebuyers put a down payment of less than 10 per cent on their homes.

Most of the homes that sell between $500,000 and $1 million are located in Toronto and Vancouver, Kavcic said. But he noted that even in those cities, there are relatively few buyers with a down payment of less than 10 per cent.

Meanwhile, TD Economics said the tighter mortgage rules are "unlikely to be a game changer."

"The impact on housing activity is likely to be relatively modest and short-lived," TD Economics Vice President and Deputy Chief Economist Diana Petramala said in a statement.

She said TD Economics has been forecasting a gradual cooling in "fast-growing markets" beginning next year.

"On a national basis, we are expecting average existing home price growth to moderate to a low single digit rate next year, and to fall modestly in 2017," she said.

Ottawa has introduced a series of changes aimed at tightening mortgage rules over the last few years, which included reducing the maximum amortization period for government-insured mortgages to 25 from 30 years.

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